The present work utilizes system identification technique for health monitoring of shear building, wherein Parametric State Space modeling has been adopted. The method requires input excitation to the structure and also output acceleration responses of both undamaged and damaged structure obtained from numerically simulated model. Modal parameters like eigen frequencies and eigen vectors have been extracted from the State Space model after introducing appropriate transformation. Least square technique has been utilized for the evaluation of the stiffness matrix after having obtained the modal matrix for the entire structure. Highly accurate values of stiffness of the structure could be evaluated corresponding to both the undamaged as well as damaged state of a structure, while considering noise in the simulated output response analogous to real time scenario. The damaged floor could also be located very conveniently and accurately by this adopted strategy. This method of damage detection can be applied in case of output acceleration responses recorded by sensors from the actual structure. Further, in case of even limited availability of sensors along the height of a multi-storeyed building, the methodology could yield very accurate information related to structural stiffness.